According to the report, tax avoidance and the proceeds of economic crimes are the mainstays of money launderers in India, but laundered funds are also derived from narcotics trafficking and trafficking in persons, trans-national organised crime, illegal trade and corruption.

The country's porous borders and its location between heroin-producing countries in the Golden Triangle (Southeast Asia) and Golden Crescent (Southwest Asia) make it a frequent transit point for drug trafficking.

The proceeds from Indian-based heroin traffickers re-enter the country via bank accounts, the hawala system and money transfer companies, the report said.

"Several indigenous terrorist organisations coexist in various parts of the country; many are linked to external terrorist groups with global ambitions."

Terrorist groups often use hawaladars and currency smuggling to move funds from external sources to finance their activities in India.

"Indian authorities also report they have seized drugs sold by India-based insurgents to production or trafficking groups in neighbouring countries," it said.

Moreover, effective implementation of the current law remains a significant concern. Despite increased law enforcement resources, as of Apr 2011, there were still no money laundering convictions or confiscations.